Authors: Paul Craig Roberts
"The trends in value added per employee are consistent with the adverse movements in the distribution of U.S. income over the past 20 years, particularly the subdued income growth in the middle of the income range. The tradable side of the economy is shifting up the value-added chain with lower and middle components of these chains moving abroad, especially to the rapidly growing emerging markets. The latter themselves are moving rapidly up the value-added chains, and higher-paying jobs may therefore leave the United States, following the migration pattern of lower-paying ones. The evolution of the U.S. economy supports the notion of there being a long-term structural challenge with respect to the quantity and quality of employment opportunities in the United States. A related set of challenges concerns the income distribution; almost all incremental employment has occurred in the non-tradable sector, which has experienced much slower growth in value added per employee. Because that number is highly correlated with income, it goes a long way to explain the stagnation of wages across large segments of the workforce."
What is Spence telling us? Spence is careful not to say that globalism is the intentional result of enhancing capital's profits at the expense of labor's wages, but he does acknowledge that that is its effect and that globalism or jobs offshoring has the costs that Daly, Gomory, McMillion, Milliken, Goldsmith and I have pointed out. Spence uses the same data that I have provided that proves that during the era of globalism the U.S. economy has created new jobs only in nontradable services that cannot be offshored or be produced in locations distant from the market for the services. For example, the services of barbers, waitresses, bar tenders and hospital workers, unlike those of software engineers, cannot be exported. They can only be sold locally in the location where they are provided.
Tradable jobs are jobs that produce goods and services that can be exported and thus can be produced in locations distant from their market. Tradable jobs result in higher value-added and, thereby, higher pay than most non-tradable jobs.
When a country's tradable goods and services are converted by offshoring into its imports, the country’s employment changes to low productivity domestic service jobs. These domestic service jobs, except for dentists, lawyers, teachers and medical doctors do not require a university education. Yet, America has thousands of universities and colleges, and the government endlessly repeats the mantra that "education is the answer."
My hat is off to Michael Spence, a Nobel economist who has made it clear that the “New Economy” is the offshored economy.
Globalism
is a conspiracy against First World jobs. It is the process by which capital extracts surplus and appropriates the earnings of labor. By moving offshore the production of goods and services for the home market, corporations benefit from labor arbitrage. Because of large excess supplies of labor, especially in China and India, First World corporations can hire labor at wages below the value of labor’s contribution to output, thus raising the earnings of capital.
As globalism is also a conspiracy against Third World agricultural communities, which are turned into monocultures that serve global capital, some readers might object to my emphasis on globalism’s harmful effects on the US economy. Why, they might ask, am I concerned only with the rich Americans and not with the poor in Africa, Latin America and Asia?
Others have documented the damage done by globalism to these countries (see Michel Chossudovsky,
The Globalization of Poverty
). The assumption has been that these countries are plundered for the benefit of the West. But unless the West is defined as a few large corporations and banks, this is not the case. There is no better way to demonstrate that globalism is not in the world’s interest than to show that it has damaged the economy of the country most expected to benefit--the hegemonic superpower, the United States of America.
The US economy has been unable to generate full employment for a decade. As of August 2011, there were 6.7 million fewer jobs than in January 2008, the employment peak of the 21st century prior to the financial crisis. There were 2.1 million fewer jobs in January 2011 than in January 2001. After ten years of immigration and population growth, there are fewer US jobs than a decade ago.
The economy’s inability to generate jobs has left Americans with a high rate of unemployment. The 9% figure (known as U.3) used by the financial press is misleading. It does not include discouraged workers and workers in part-time jobs who cannot find full-time jobs. The Bureau of Labor Statistics knows that the U.3 measure of unemployment is unrealistic and provides another measure, U.6, which includes short-term discouraged workers. This measure of unemployment was 16.2% as of the end of October 2011, but even this measure understates the unemployment. In 1994 the US government ceased to include long-term unemployment as part of the labor force in order to minimize the rate of unemployment. Statistician John Williams of shadowstats.com continues to estimate long-term unemployment. He adds the number of long-term unemployed to the U.6 measure, which results in an unemployment rate of 23%. A country with between one-fifth and one-fourth of its labor force out of work is certainly not benefiting from globalism or from financial deregulation.
During the Clinton regime the consumer price index (the measure of inflation) ceased to be based on a fixed basket of goods that measured a constant standard of living. The principle of substitution was introduced. The assumption is that if the price of an
item rises, people switch to a less expensive substitute. In other words, the new consumer price index (CPI) shows lower inflation by measuring a lower standard of living. Some people have responded to the new measure by joking that when home heating costs rise, consumers switch to sweaters and heavy coats, thus eliminating the rising cost of energy from the measure of inflation.
John Williams continues to measure inflation by the official government methodology prior to the replacement of a fixed basket of goods with a basket that substitutes lower priced goods for those that rise in price. Using the original methodology, Williams finds the US inflation rate as of October 2011 to be 11.1%, which is 3.2 times the government’s official rate of 3.5%.
Note that whichever measure of inflation is used, real interest rates on US debt instruments are negative. By suppressing interest rates, the Federal Reserve is reducing consumer purchasing power and living standards and forcing retired people to spend their capital as their saving accounts produce no income.
Gross Domestic Product is a measure that is adjusted for inflation in order to know real output instead of a measure inflated by price increases. The “recovery” from the US recession associated with the real estate collapse and financial crisis was achieved by deflating GDP with an understated measure of inflation. When inflation as measured by previous methodology is used, US GDP growth shows no recovery.
As we have seen, the income gains from globalism have flowed to the mega-rich. Everyone else has been dispossessed. Income distribution is calculated from the Lorenz curve and presented as a Gini index. According to the Central Intelligence Agency (CIA), the US has a Gini index of 45, which places the US among the countries with the worst income distribution. Namibia has the worst income distribution with a Gini index of 70.7, and Sweden has the most equal income distribution with a Gini index of 23.
https://cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html
In the US the distribution and control over wealth is even worse than the income distribution. In the 1960s, despite President John F. Kennedy’s reduction in marginal tax rates, which President Ronald Reagan’s tax rate reduction paralleled, the top one percent received ten percent of income gains, and the bottom ninety percent received sixty-five percent of the income gains.
During the first decade of the 21st century, this distribution reversed. The top one percent received sixty-five percent of the income gains, and the bottom ninety percent received twelve percent. Globalism was a powerful contributor to this reversal, because it transformed Americans’ wages and salaries into capital gains and executive bonuses.
In America poor people are now abundant. In 313 counties of American states, life expectancy for women has declined over the past 20 years. Six million more Americans have fallen into poverty since 2004. In September 2011 the US Census Bureau released a survey showing that one in six Americans now live in poverty, a new high.
http://www.nytimes.com/2011/09/14/us/14census.html?_r=1&hp
Fifty million Americans rely on food stamps, a government food program for the poor.
The Census Bureau also reported that real median household incomes dropped 2.3 percent in 2010 from 2009, and that the top twenty percent of the income distribution controls eighty-four percent of US wealth. The distribution of wealth in the US is so highly concentrated that the 400 richest US families, all of whom are billionaires, have the same net worth as the fifty percent less well-off Americans. When 400 people have the same wealth as 150,000,000, clearly things are out of balance.
Corporations have not been content only to offshore American jobs. Business leaders are also replacing Americans with foreigners in those jobs that corporations find convenient to retain in the US. Business leaders claim that they cannot find enough Americans with science and engineering degrees to fill the jobs. Corporation executives have been successful in lobbying Congress for work visas for foreigners, who are employed in place of Americans at substantially lower costs in violation of the rules governing the work visa programs.
The two largest programs are the H-1B visas for skills in short supply and L-1 visas that allow multinational companies to bring foreign employees to the US for “training.” The legislation creating the H-1B visas specifies that visas are not to be used for the replacement of US workers and that foreigners on the visas should be paid the same as American workers. Corporations easily evade these restrictions. They hire law firms to advertise job openings in ways that disqualify Americans. Moreover, H-1B visas are becoming the property of businesses that supply foreign employees to US corporations on a contract basis. The corporations hire the businesses to supply the personnel; they do not hire the individuals themselves, which has the advantage of further reducing the cost.
In June 2007, a revealing marketing video from the law firm, Cohen & Grigsby appeared on the Internet. The video demonstrated the law firm’s techniques for getting around US law governing work visas in order to enable corporate clients to replace their American employees with foreigners who work for less. The law firm’s marketing manager, Lawrence Lebowitz, is frank with interested clients:
“our goal is clearly not to find a qualified and interested US worker.”
If an American somehow survives the weeding out process, the law firm advises its corporate clients to “have the manager of that specific position step in and go through the whole process to find a legal basis to disqualify him for this position--in most cases there doesn’t seem to be a problem.”
No problem for the employer he means, only for the expensively educated American university graduate who is displaced by a foreigner imported on a work visa justified by a nonexistent shortage of trained and qualified Americans.
University of California computer science professor Norm Matloff, who watches this issue closely, said that Cohen & Grigsby’s practices are the standard ones used by hordes of attorneys, who are making money by putting Americans out of work.
The Cohen & Grigsby video was a short-term sensation as it undermined the business propaganda that no American employee was being displaced by foreigners on H-1b or L-1 work visas. Soon, however, business organizations and their shills were back in gear lying to Congress and the public about the amazing shortage of qualified Americans for literally every technical and professional occupation, especially IT and software engineering.
Everywhere we hear the same droning lie from business interests that there are not enough American engineers and scientists. For mysterious reasons educated Americans prefer to be waitresses and bartenders, hospital orderlies, and retail clerks.
As one of the few who writes about this short-sighted policy of American managers endeavoring to maximize their “performance bonuses,” I receive much feedback from affected Americans. Many responses come from recent university graduates such as the one who “graduated nearly at the top of my class in 2002” with degrees in both electrical and computer engineering and who “hasn’t been able to find a job.”
The hundreds of individual cases that have been brought to my attention are dismissed as “anecdotal” by my fellow economists. So little do they know. I also receive numerous responses from American engineers and IT workers who have managed to hold on to jobs or to find new ones after long intervals when they have been displaced by foreign hires. Their descriptions of their work environments are fascinating.
For example, Dayton, Ohio, was once home to numerous American engineers. Today, writes one surviving American, “I feel like an alien in my own country--as if Dayton had been colonized by India. NCR and other local employers have either offshored most of their IT work or rely heavily on Indian guest workers. The IT department of National City Bank across the street from LexisNexis is entirely Indian. The nearby apartment complexes house large numbers of Indian guest workers filling the engineering needs of many area businesses.”